Watch out, stock market,, here come the SOES BANDITS

And they're ready to make money the old-fashioned way: By outsmarting the big guys.

That may be one reason why Phil Naftolin could take his day of loss with equanimity: he's planning to get into the hideout side of the business himself. On May 16, Block Trading held a going-away party for Naftolin and Rhett Baker; they were getting ready to leave for Phoenix, where they would open a new Block Trading franchise. Naftolin, who says he knew nothing about the stock market, learned about SOES trading by watching Jeff Burke trade for a couple of weeks and writing down questions to ask him at the end of the day. Now he'll be passing on the secrets of SOES to customers in Phoenix. And one of the first things he will tell them is that SOES trading is not guaranteed to work every day. It works better in a volatile market than a flat market. And not everyone is sharp every day.

The going away party was held at World Bait, an unpretentious little bar behind the chichi 8.0. With the company picking up the tab, you know that by late in the evening someone is going to be drinking double shots and making a fool of himself, but it's early now, and two sparkling women are talking to Naftolin, who is perched on a bar stool, long recovered from his $6,000 loss, not just a trader anymore, but a franchise owner, a man who is going to spread the gospel in Arizona. Baker, meanwhile, is circulating around the room like a handsome older fraternity boy in his polo shirt and khaki trousers and sockless loafers.

This is a heady time for SOES bandits. Where once they were all but unknown outside a small group of stock traders, they're starting to get a public profile. Ads promising to teach the secrets of SOES pop up in newspapers; proud SOES bandits can be seen in restaurants wearing T-shirts emblazoned with the slogan, "SOES traders do it over the counter." The prophets of SOES see this as evidence that their message is being heard, that the once august stock market is being opened up to the little guy. Sure, the little guy may need around $100 grand to get into the game, but that's a lot better than the millions it once took.

But this is also a perilous time for SOES bandits. The higher visibility has resulted in the big guys trying again to rein them in. The National Association of Securities Dealers, whose board is made up of market makers, has proposed that market makers be given a 20 second delay in the computer system to adjust their prices, a delay that would cut into the SOES bandits speed advantage, and which they contend is patently unfair. Such a delay, say SOES traders, would once again put all the power in the hands of the market makers.

In this debate, the Securities and Exchange Commission, which regulates the stock markets, may end up weighing in on the side of the SOES traders. In 1994, two university professors published a study of market manipulation by the large brokerage firms that confirmed some of Harvey Houtkin's charges against them. And last year, the SEC began its own investigation of market manipulation in NASDAQ. Maybe, the SEC seemed to be saying, the bandits weren't so bad after all. Maybe they should be compared not to parasites but to helpful symbionts, cleaning up around a large animal and keeping it healthy.

Whatever happens, Burke and Block are enjoying playing the game. They love tweaking the power brokers; change doesn't perturb them. They thrive on it. Change jobs, change careers, change cities, change the stock market. If NASDAQ changes the rules, they'll just adapt.

At the World Bait going away party for his new franchisees, Jeff Burke drives up in a new red Ferrari convertible. Burke is taking a study break, for he's cramming for the test to get an advanced stockbroker's license. Study hard, party hard. Stephanie Clark is there, too. She parked her silver Porsche Carrera convertible right in front of the bar. When she first made big money last fall she bought a Lexus sedan. But that was too sedate, a retail stockbroker's kind of car. It wasn't nearly agile and quick enough for a SOES bandit.

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